Algorand’s On-Chain development in Review

One of my favorite layer 1 blockchain projects is Algorand. In fact, I use ALGO in order to showcase the power of cryptocurrencies to people outside of the crypto space. Block times are under 5 seconds with instant finality, so when they download the Algorand mobile wallet and I send them a small sample of ALGO, the coins arrive nearly instantly, while the transaction fees are only a fraction of a cent.

However, the main advantage I usually show them in this context is that, once they hold at least 1 ALGO in their wallet, they immediately start receiving staking rewards in real-time, without having to do anything. With these features, ALGO is just a great coin to get people interested in cryptocurrencies and staking.

What really lets Algorand stand out among other blockchains though, is their active development. In late 2019, only few months after the Algorand Mainnet went live, the dev team published Algorand 2.0, which brought new features, such as Smart Contracts at Layer 1, Algorand Standard Assets, and Atomic Transfers.

Now it seems that Algorand is close to taking the next step in their on-chain development, by incorporating a multi-chain architecture. The principle behind this idea that was first championed by state- of-the-art blockchain projects like Cosmos and Polkadot, is that having multiple blockchains run parallel to each other multiplies the TPS that can potentially be processed on a blockchain network by the number parallel chains.

With the upcoming co-chain architecture, Algorand wants to implement this idea. Like in all multi-chain architectures, Algorand co-chains are linked to the public mainchain, which allows the co-chains to interact with each other, making them interoperable. Otherwise, all transactions within a co-chain are shielded from outsiders.

All of the co-chains are independent from each other, while the operator of a co-chain chooses the validators. Thus, co-chains are permissioned by default. However, the co-chains enjoy the same features as the mainchain, including Algorand’s True Proof of Stake consensus mechanism and the new features introduced in Algorand 2.0.

The permissioned nature of co-chains in going to make them an attractive options for institutional players who want to profit from the privacy-centric benefits of Distributed Ledger Technology, but want to retain a certain level of control over the blockchain state, which is not possible in permissionless blockchains. Thus, enterprise-scale businesses, commercial banks, or potentially even central banks who want to issue a CBDC might take a look at Algorand for a solution.

A project that will likely be one of the first to profit from the new capabilities of Algorand is Tether. The leading stablecoin has recently incorporated Algorand as one of its host blockchains, making use of Algorand’s high transaction throughput and layer 1 features. Especially atomic transfers are an important feature here, allowing for efficient and secure swaps between USDT, ALGO, and the various standardized Assets on the Algorand blockchain. As such, I predict that Tether will be one of the first projects to run their own co-chain.

As Algorand mentions in their announcement of the co-chain architecture, the world needs both permissionless and permissioned blockchains. By integrating the best of both architectures in a hybrid multi-chain network, Algorand continues its way towards an appealing solution for both blockchain enthusiasts and institutional enterprises. In addition, having multiple chains run in parallel further increases Algorand’s already impressive scalability.

Overall, I think that the implementation of co-chains is a great and important step in Algorand’s development. So far, Algorand has not disseminated much information about the upcoming new features, but there will be a virtual Q&A session with their CEO, Silvio Micali on April 07, where co-chains will be discussed. In any way, I am eager to learn more about the new features and Algorand’s further development plans.